For much of the 26 years since the beginning of the millennium, India has aimed at becoming a rising economic power by way of first becoming a service centered hub and gradually shifting towards becoming a centre of manufacturing. However, many of these ambitions have hit the wall of geopolitical constraints as New Delhi is forced to navigate one of the most hostile neighbourhoods in all of Asia.

India has historically been both a continental and maritime economy, with both mercantilism and strategic security as well as economic concerns being the driving force behind expansion in both the land and sea domain. While India’s territorial negotiations with its neighbours have yielded positive results, its trade potential remains geographically throttled as it is unable to exploit some of the most lucrative overland trade corridors.

Adversarial neighbouring countries such as China and Pakistan which share a border with each other also seek to dominate markets in what New Delhi traditionally considers a more amenable lot amongst its neighbours such as Bangladesh, Nepal, and Sri Lanka.

However, the unseen cost of these frictions is unrealised potential trade volume, underdeveloped and under-serviced infrastructure as well as the inability to mitigate effects of economic border shocks for all involved. Economically and strategically the most consequential dispute is in the Himalayas, across the Line of Actual Control (LAC) between China and India.

Due to Beijing’s hostile and assertive posture, the Indian population recognises it more as a volatile national security frontier than a trade artery and major source of wealth as it was during much of the past few hundred years. Paradoxically while the biggest drain on its exchequer for settling payments for imports and military spending aimed at maintaining credible deterrence, China is also New Delhi’s biggest trading partner by value and volume right alongside the US.

According to data from India’s Department of Commerce, the country had a trade deficit of $99.2bn with China in FY2024–2025. While the main cause for this is the nature of the Indian economy and the policy direction its political leadership adopted for much of the late 20th and first two decades of the 21st century, India essentially put most of its eggs into the basket of service and outsourcing sectors - providing cheap white collar labour to Western conglomerates in the technology and finance sectors.

New Delhi’s more recent awakening to the strategic significance of the manufacturing sector happened at a time when China had already consolidated over four decades of expertise, thus anything short of a technological leapfrogging scenario made Indian entities competing with their Chinese counterparts untenable.

Furthermore, Indian companies have found no significant direct complementarities to Chinese goods and services that they could channel into mutually beneficial arrangements, instead ceding the opportunities for value creation to Western conglomerates that exploited cheap Chinese factory produced goods and the trained but low paid skilled service industry labour of Indian nationals.

Pakistan presents an even bleaker picture, as Islamabad’s claim over the Indian state of Jammu and Kashmir and the constant threat of insurgents supported by Pakistan’s military makes it nearly impossible for a normal bilateral trade relationship to exist.

As India is forced to bypass Pakistan to service its relations and bilateral trade with Afghanistan and former Soviet Central Asian states, the costs increase, thus lowering the profit in what was traditionally the second most important trade artery for India.

Looking north, while India's border with Nepal has been the least concerning in terms of security threats, it hasn’t been entirely untouched by controversies and friction. As is evident from newly elected Nepali Prime Minister Balen Shah’s speech to the Nepali Parliament, in which Shah acknowledged that there is a need for a trilateral engagement between India, Nepal and the UK to resolve the present day territorial concerns, many are the result of British policy during its colonial administration of an undivided India.

However even with the resolution of the dispute, the net beneficiary in trade terms is likely to be Kathmandu as it relies on India for much of its international trade access as well as infrastructure financing, with New Delhi not finding a proportionate route to channel its exports to any desirable destinations via Nepali territory.

Since it also shares a border with China, Nepal has to entertain its trade access and infrastructure funding offers on an equal pedestal as New Delhi, but due to a much better people to people connection and shared cultural affinity, Kathmandu has largely prioritised India over Beijing.

Bangladesh and Sri Lanka, despite being traditionally more amenable to India, have been more volatile in their alignment between India and China, largely reflecting the policy stance and alignment of the governments in power at certain points in time.

Under Sheikh Hasina and her 15 year rule over Dhaka, India was the primary trade partner for Bangladesh, with China only able to extend its influence when India explicitly chose to pass over the opportunity for financing development or exploiting any revenue sources.

However, after Hasina’s ouster in 2024 and the interim government’s lack of a coherent and long term policy vision, things are yet to become clear vis-a-vis the newly elected Bangladesh National Party Prime Minister Tariq Rahman and if he will choose to align with Beijing or New Delhi.

It is possible that Rahman could go an entirely new route of equidistance, which will likely start a race between India and China to court more influence in the country.

One issue in the relationship is India's large number of illegal immigrants from Bangladesh, which has had a measurable impact on the level of unemployment and cost of living for its own population, as demographics in its border regions have begun to change.

The illegal immigration problem is partly the reason behind India being selective about enforcing border control and trade flows to and from Bangladeshi territory, which inherently lowers volume and transshipment potential for India’s own exports.

Similarly, under the government of Sri Lanka’s former president, Mahinda Rajapaksa, Colombo was facilitating Chinese investment and trade access into the country at breakneck speed.

However, after a major economic crisis that saw the Rajapaksa administration ousted from office, Sri Lanka under the incumbent Anura Kumara Dissanayake administration has chosen a more equidistant policy of alignment between India and China.

Unfortunately unresolved disputes over fishing rights and maritime access still leads to minor frictions between the two countries’s maritime constabulary, coastguard and navies on occasion, leading to yet another obstacle in what could be a complimentary, if not healthily competitive co-owned fishing industry.